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Edited Transcript of CSU earnings conference call or presentation 9-May-19 2:00pm GMT

Q1 2019 Capital Senior Living Corp Earnings Call

DALLAS May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Capital Senior Living Corp earnings conference call or presentation Thursday, May 9, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carey P. Hendrickson

Capital Senior Living Corporation - Executive VP & CFO

* Kimberly S. Lody

Capital Senior Living Corporation - CEO, President & Director

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Conference Call Participants

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* Chad Christopher Vanacore

Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst

* Dana Rolfson Hambly

Stephens Inc., Research Division - Research Analyst

* Joanna Sylvia Gajuk

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Good day, and welcome to the Capital Senior Living First Quarter 2019 Earnings Release Conference Call. Today's conference is being recorded.

All statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities laws. These statements are made as of today's date and the company expressly disclaims any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ are detailed in the earnings release the company issued earlier today as well as in the reports the company filed with the SEC from time to time, including the risk factors contained in the annual report on Form 10-K and quarterly report on Form 10-Q. Please see today's press release for the full safe harbor statement, which may be found at capitalsenior.com/investor-relations and was furnished in an 8-K filing this morning. Also please note that during this call, the company will present non-GAAP financial measures. For reconciliations of each non-GAAP measure from the most comparable GAAP measure, please also see today's press release.

At this time, I would like to turn the call over to Capital Senior Living's President and CEO Ms. Kimberly Lody. Please go ahead.

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [2]

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Thank you, and good morning, everyone. Welcome to Capital Senior Living's conference call to discuss our first quarter 2019 results. Along with today's press release and comments, we have also posted a new investor presentation to our website where you can find additional information about the company and our strategy. I encourage you to access those materials.

Last quarter, we talked about our renewed commitment and focus on 2 top priorities: driving consistent, predictable and improved operating performance and strengthening the company's financial foundation. Today, I am pleased to share an update on our progress, provide additional detail on various initiatives and reaffirm our commitment to growing occupancy and achieving top line growth.

Let's first focus on the operating performance. While we still have a lot of work ahead, we are now executing on our plan and I am encouraged by our progress. On a consolidated basis, we delivered occupancy and NOI margin in Q1 that are essentially consistent with the previous quarter's metrics, with occupancy of 83.1% and NOI margin of 35.1%. Our same-store occupancy was also in line with Q4 at 84.4%. While these results are not yet at the levels we expect, the quarter-to-quarter consistency is an important indicator that the business is beginning to stabilize.

Considering that the first quarter of the year is typically the most difficult due to winter-related illnesses and corresponding move-outs, we are encouraged that Capital Senior Living's sequential quarterly occupancy development was consistent with that of the overall industry, which was largely unchanged as reported in the Q1 net data.

As part of our continued focus on improving operational performance, we previously outlined a number of immediate and impactful initiatives. While I won't go into each of those initiatives again, I will say that I'm pleased with the organization's response to our new direction and the speed, at which our team is executing. To improve operational performance, it's essential that our constituents understand our value proposition, how we are positioned in our markets today and how this value proposition will serve us into the future.

First and foremost, we are committed to owning and operating our independent living, assisted living and memory care communities. Owning our real estate has historically provided significant financial and operational advantages and has strengthened our capacity to better serve our residents. While today we lease 36% of our communities, we believe that the owner operator model provides the highest opportunity for strong performance and long-term value creation.

Capital Senior Living strength is operating mid-sized, value-oriented communities in attractive secondary and tertiary markets. We believe this is a sweet spot where we can best utilize our scale and centralization to provide affordability and consistency to middle market residents and their families while at the same time maintaining local flexibility to optimize resident-centric engagement, personalization, comfort and care. We're cultivating a culture in mindset of serving the right residents with the right services for the right value.

Another element of stabilization and improved performance is ensuring that our 2019 to 2021 plan strategic pillars and required actions are clear and deliverable. We launched the framework for this strategic agenda: stabilize, invest, nurture and grow, or SING, on the last earnings call. We have further refined this framework, and we continue to implement high-impact initiatives across the business to optimize our execution.

We are now organized for success. You may recall that in late February, we made a change in our operations leadership. We further complemented this change by realigning our field operating structure. We reduced the sizes of our regions to allow some more frequent and consistent in-person oversight by our operational management team. We promoted top performers into leadership roles. We reduced or eliminated unnecessary and burdensome administrative tasks. We restored decision-making authority back to our community and regional leaders, and we provided new reports and operating tools to accelerate and enhance day-to-day performance. I have deliberately slowed our search for a Chief Operating Officer, so that I can personally continue to work directly with our operations teams to minimize distractions and maintain focus on improving occupancy and NOI while providing excellent services to our residents. I'm confident that with our emerging operational discipline, we will continue to see improved results.

Additionally, the robust management system instituted in Q1 is now providing detailed real-time analytics of our community level data along with alignment to our operating principles and accountability in all positions at every level. Optimizing our labor utilization is another area where we are seeing signs of improvement. Our year-over-year employee labor cost increased just 2.4% in the first quarter. Evidence that managing to property level, labor utilization targets and addressing caregiver wage pressures in select markets is beginning to deliver tangible impact. And while our commercial excellence initiatives are still in the early days of development, we've completed a full evaluation of our sales process and marketing strategy and are making changes that will improve our lead generation and sales execution. We will provide more detail about these initiatives on the next call.

Now let's focus on our other immediate priority of improving the company's financial foundation. Carey will review the numbers in detail, but beforehand, I'd like to comment on a number of key actions that are already contributing to this goal. As you know, we closed on a master credit facility at the end of 2018, and this provided us with the financial flexibility to engage in the activities necessary to improve the business. We have now also completed a detailed analysis of our portfolio and have plans to divest those assets that no longer fit our portfolio strategy. This includes a small group of owned assets that we have been marketing for sale. We believe these communities have strong valuation and will provide meaningful net proceeds to the company upon closing.

We are also working with one of our lenders to extend for 2 additional years a $65 million bridge loan that currently matures in 2020. We also have 9 communities in the lease pools that expires in 2020. Because they do not currently make money for the company, we are seriously considering exiting these leases and doing so in a way that is meaningful to both company and the landlord.

Before turning the call over to Carey, I want to mention market conditions in the senior housing industry. For the second quarter in a row, absorbed units outpaced inventory growth units. While this is encouraging, new construction remains high at 6.7% of inventory, and we expect continued industry headwinds for the next 12 to 18 months. Our diligence and focus are on improving the things we can control while navigating industry conditions in our markets. We are encouraged by the strength of our leadership, the change we see taking hold in the business and more importantly, emerging signs that the business is stabilizing.

I want to assure you that we continue to act with urgency to effect sustainable, improved operating performance along with improving our balance sheet. And while we're doing all of that with urgency, we are also making sure that it is done right. The goal is to transform into an organization that is built to last for the benefit of all of our stakeholders, and we will take the time needed in 2019 to make sure it is executed correctly.

I will now turn the call over to our Chief Financial Officer Carey Hendrickson.

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [3]

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Thank you, Kim. In the results I'll discuss and as we note in the press release are non-GAAP measures that exclude 2 communities that are undergoing lease-up after significant renovation and conversion. The non-GAAP measures continue to include the 2 Houston communities impacted by Hurricane Harvey since our business interruption insurance restores their economic loss. However, the statistical measures that we include in the release exclude the results of these 2 communities since they aren't leased up and to include them would make the statistical measures less meaningful.

There's still much we can do and we need to improve on in our execution operations going forward, but we're encouraged by some of the early signs of stabilization that we saw in the first quarter and firmly believe the changes in organizational structure and personnel and operations, sales and marketing and the new processes implemented in the first quarter will lead to improved operating and financial performance in the months and years ahead. Given that the first quarter is typically the most challenging quarter of the year with the flu and other winter-related illnesses, we're pleased that both of our consolidated occupancy and our same community occupancy declined only 10 basis points on a sequential basis, from the fourth quarter of 2018 to the first quarter 2019.

Also our consolidated NOI was consistent with the fourth quarter at $40.1 million versus $40.3 million in the fourth quarter of 2018, and our NOI margin showed a slight increase of 10 basis points from 35.0% in the fourth quarter of '18 to 35.1% in the first quarter of 2019.

Kim mentioned that she and I visited a number of facilities since the beginning of the year, we've observed firsthand the strength of our local community teams and the excellent resident center care and services they're providing to our residents. And this gives us tremendous confidence that our foundation is solid and that we have a strong base from which to launch the transformation of Capital Senior Living.

In our release this morning, we reported total consolidated revenue of $114.2 million for the first quarter of 2019, a decrease of $0.5 million or 0.4% over the first quarter of 2018. The decrease is related to lower financial occupancy year-over-year partially offset by a nominal increase in average rent as well as incremental revenue in the first quarter of 2019 from the company's 2 communities impacted by Hurricane Harvey, which came back online in July of 2018.

Operating expenses increased $3.7 million or 5.2% in the first quarter 2019 to $75.4 million. Operating expenses at our 2 hurricane impacted communities were $900,000 greater than the prior year, including a lesser business interruption credit of approximately $350,000. Both communities began admitting residents in July 2018 as I noted earlier and are making steady progress. Business interruption, reimbursements for these 2 communities are expected to continue through the second quarter of this year.

Our general and administrative expenses for the first quarter of 2019 were $7.6 million compared to $6 million in the first quarter of 2018. The first quarter of 2019 included approximately $1.2 million in incremental costs associated with the separation and placement of certain marketing and executive roles. Excluding these and other transaction costs from both years, our G&A expense decreased approximately $100,000 in the first quarter as compared to the first quarter of 2018. Our G&A expense as a percentage of revenue under management was 5.1% in the first quarter 2019, which is the same as it was in the first quarter of 2018. Our adjusted EBITDAR was $34.3 million in the first quarter of 2019 compared to $37.9 million in the first quarter of 2018.

Adjusted CFFO was $5.5 million in the first quarter of 2019 compared to $10.4 million in the first quarter of 2018. CFFO for the first quarter of 2019 included a negative net impact to CFFO of approximately $500,000 related to the adoption of the new lease accounting standards. So on a basis comparable to the prior year, CFFO was $6 million, or if one were to do the math, $0.20 per share.

The new lease accounting standard required us to reassess 2 leases that were previously accounted for as financing leases, which resulted in a change of their classification from financing leases to operating leases. In association with this change in classification, our first quarter interest expense was reduced by approximately $400,000 and our first quarter rent expense was increased by approximately $900,000, which the result was the negative net impact of CFFO of $500,000. The cash payments related to these 2 leases didn't change. There was no true cash impact associated with the reassessment. And there was no impact on EBITDAR as the changes were interest expense and lease expense, both of which are excluded from EBITDAR.

Speaking of the new lease accounting standard, it also required us to perform an impairment analysis of the right of use asset established by the standard, which resulted in a $17.8 million impairment charge associated with 8 of our community leases, which was taken against our beginning retained earnings. So our balance sheet now has right of use asset of $246.4 million and a right of use liability of $279.9 million, $44.6 million which is current.

Looking at our same community results. Same community revenues decreased 1.2% as compared to the first quarter of 2018. We had a modest increase in average monthly rent of 0.8% as compared with the first quarter of the prior year, but same community occupancy declined 170 basis points to 84.4%. The decline was only 10 basis points on a sequential basis from the fourth quarter of 2018. Again, we see that as an early sign of the stabilization of our occupancy.

There were variations in occupancy performance across our portfolio in the first quarter of 2019 based on the supply/demand metrics dynamics in the markets, competitive position in those markets and the execution of our local community teams. In the Dallas market where we have our largest concentration of communities with 17 communities, our financial occupancy declined 20 basis points on a sequential basis from the fourth quarter of 2018 to the first quarter 2019, which is slightly greater than our overall portfolio sequential decline of 10 basis points. We have 3 other markets where we have 4 or more communities in the market: Indianapolis, which had a sequential occupancy decline of 40 basis points; Cincinnati, which had a sequential occupancy increase of 40 basis points; and Omaha, where occupancy increased 290 basis points on a sequential basis, growing from 92.8% in the fourth quarter of 2018 to 95.7% in the first quarter of 2019.

Looking at our 3 largest states, our occupancy declined at a greater rate than our overall portfolio in Indiana, which was down 40 basis points, while occupancy in Texas increased 50 basis points, and in Ohio, it increased 100 basis points.

Our same community expenses in the first quarter of 2019 increased 3.3%. Our employee labor cost increased 2.4% in the first quarter of 2019 versus the first quarter of 2018. Including contract labor, our labor expense increased 3.7% over the prior year. We continue to experience wage pressure in certain markets, particularly for caregivers. We have made wage adjustments at a number of communities that had the most significant wage pressure, and we expect reductions in overtime in contracts labor to offset much of the resulting increase in direct labor, although the savings may slightly lag the investment.

As we noted on our fourth quarter conference call, we eliminated approximately 250 positions across our field operations in February with none of the reductions in caregiver positions to better match our labor expense to current revenue levels. This reduction enforced less than the increase in our labor cost in the first quarter, and we expect that to continue through the year.

Our food cost decreased 1.3% in the first quarter due to the centralized procurement platform that we implemented in April of 2018. Our other large cost category, utilities, decreased 1.4% over the first quarter of last year. Our same community net operating income decreased 8.5% in the first quarter of 2019 as compared to the first quarter of 2018.

Looking briefly at the balance sheet. We ended the quarter with $35.2 million of cash and cash equivalents including restricted cash. During the first quarter, we spent $3.4 million on capital expenditures. Our mortgage debt balance at March 31 was $978 million at a weighted average interest rate of approximately 4.9%. At March 31, the majority of our debt was at fixed interest rates expect the 3 bridge loans that totaled approximately $80 million and $50 million of long-term variable rate debt under our master credit facility.

As Kim noted, we closed on the sale of our community in Kokomo, Indiana on May 1 at a price of $5 million. The transaction generated net cash proceeds of $1.4 million. It was classified as held-for-sale on our balance sheet at March 31, and we recorded the $2.3 million impairment charge related to the community.

As part of our ongoing effort to strengthen our financial foundation and optimize our portfolio, we're continuing to market a limited number of assets for potential divestiture. Some of the communities are in the purchase and sale agreements and in the final phases of due diligence with expected closings in the next 90 days. We expect those assets and others for marketing to generate strong value and meaningful net cash proceeds.

Our focus for 2019 will remain on continuing to stabilize and invest in our operations as we create a platform for growth in the years ahead. We expect these actions to drive stronger results. We can't predict the timing of that improved performance, particularly in an environment that does remain challenging. We expect our operating and financial results to continue to reflect the occupancy declines that we experienced in 2018. Also the necessary market rate adjustments we implemented in many of our communities in late 2018 to place our communities in a more competitive position impacts our ability to grow our average rent in 2019. As a result, we expect comparisons to the prior year to continue to be difficult throughout 2019. However, as we enter 2020, we expect to be in a position to begin growing our financial results.

And with that, I will open the call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Chad Vanacore with Stifel.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [2]

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So Carey, you just mentioned that you expected rate to be constrained for the year. Could you give us a comparison? What were the in-place rate increases this quarter compared to the mark-to-market rates?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [3]

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Yes, the in-place rent increases varied obviously by market. It depends on what was going on -- in Omaha, for instance, you've a lot more pricing power when you have 95.7% occupancy than you do in other markets where it's less than that. But I would say in general, the in-place market rents increased at about a 3% level in the first quarter.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [4]

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All right. And then, I'd assume that mark-to-market is somewhere in the negative territory?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [5]

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I'm sorry? The mark-to-market?

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [6]

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Yes.

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [7]

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Yes. When you look at the overall rate, yes, it did decline for the fourth quarter to the first quarter because we did have the market rate adjustments that we made in the fourth quarter of 2018. That we do believe will impact us in a positive way on the occupancy line.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [8]

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Okay. It's fair to say you're trading off rate per occupancy just to stabilize things?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [9]

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That's right.

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [10]

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Yes.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [11]

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Okay. And then thinking about same-store operating expense, it was up 3.3% year-over-year. Is that right?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [12]

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Yes, that’s right.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [13]

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Labor was only up to 2.4%. What's the main driver of that expense in equation there?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [14]

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Yes. Well, it's really related to the reduction in force that we had early in the year, in February. So that lessened the amount of the increase because we are obviously still having some market wage adjustment, some market wage pressure, and we did make adjustments in the first quarter. At some of our communities, we're going to be making a few more of those in the first part -- we did make a few of those first part of the second quarter. But that is going to kind of lessen the increase in our labor cost going forward. I did note in my comments that we're including labor cost -- excuse me, contract labor costs, our labor increased 3.7%. That's a little bit of a reflection of the fact that we do have -- continuing to have some difficulty hiring for caregiver positions, and so we're having to supplement that with contracts labor. But overall, even still that 3.7% labor increase is I think pretty reasonable for the first quarter.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [15]

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Okay. All right. And then, can you point to any early impact of you re-jiggering your sales force and incentives? Are there any noticeable change in net movements or any upside there?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [16]

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No, Chad. I think it's really too early. We're 4 months into this new strategy and our Chief Revenue Officer has been here for a couple of months. What I can say in terms of early indicator is that we're pleased with the level of leads that we're seeing both year-over-year as well as sequentially from the fourth quarter. But it's really too early to tell how that sales process is translating into additional towards the move-ins.

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [17]

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Chad, I would just say anecdotally from the conversions we've had with sales persons as we have been out in a- visiting communities, they have noted to us, Kim and I, in our conversations, how they are focused now more on revenue and move-outs as opposed to just move-ins because they were previously compensated based on move-ins, and so they are very invested in that overall top revenue line, which was really the goal, and we're seeing that level of focus at the community level.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [18]

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So now your people are being compensated on that net move-ins, not just move-ins, is that right?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [19]

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Yes. Actually, Chad, their compensation is based on revenue and it is based on achieving target revenue. So one of the challenges that we had with people who are really just focused on move-ins and weren't necessarily, and I'm talking of the sales team, not necessarily focused on the resident experience or our controllable move-outs. And so now with this new incentive compensation plan, they're very focused on the whole picture and total revenue and everything that comes with that in each community. It's really a mindset change. And it's interesting because when you speak with the sales directors, they articulated extremely well that they are absolutely focused on occupancy, rate, level of care fees, controlling move-outs, everything that we want them to be focused on.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [20]

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Okay. Given that they have more control over the sales process, do they also have discretion over rate?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [21]

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They have some discussion. We went through a process in Q4 of really, I'll say, resetting the market rates making sure that our rates were appropriate for the competition levels in each of the markets. And one of the reasons that we did that was there was quite a bit of discounting and concessions going on throughout 2018. And we felt that, that was not the right approach, not in the best interest of the company or our shareholders. So we have put in place rates that we feel are very competitive and then the sales directors have a toolbox, a minimal toolbox that they are able to utilize at their discretion to help accelerate that move-in process or -- so if it's -- there is -- we can reduce the community fee by a small amount or something to encourage the move-ins sooner. They have the ability to do that, but it is limited to a specific overall amount that they can utilize.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [22]

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So more discount that will roll off in the short period rather than ongoing?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [23]

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That's right. That's right. Yes.

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Operator [24]

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(Operator Instructions) And we'll take our next question from Joanna Gajuk of Bank of America.

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Joanna Sylvia Gajuk, BofA Merrill Lynch, Research Division - VP [25]

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So I guess on that discussion in terms of the pricing. So obviously, you took a lot of these actions in 2018, but it sounds like maybe you're limiting those in 2019 to some degree. So is it fair to say that pricing should look better against 2020?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [26]

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Well, I think, certainly, we expect to -- the market rate adjustments were made in late 2018, the fourth quarter and really in December primarily. So we'll cycle through all of that in 2019. And then we would anticipate we'd have market rate increases in the first part of 2020. And so therefore, I would expect for that rate to pick up in 2020 just in a general statement, yes.

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Joanna Sylvia Gajuk, BofA Merrill Lynch, Research Division - VP [27]

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All right. Because you also made a statement that you expect just a competition that you have currently in your markets to continue to pressure for the next year or so. So are you seeing new constructions drilling down in your markets? Or are you seeing some markets where actually you're seeing acceleration or new development happening that might offset some maybe of the stabilization in this -- some of the new asset that opening on sale last year? And so any color on new construction in your markets.

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [28]

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Yes. Joanna, I'd say, it's pretty mixed depending on the particular market. I think in some of our markets, we are seeing that new construction sort of ease, but there are other markets where the new construction continues or their construction's finished and they're in leased-up activities. I think one of the things that we have done pretty successfully here in the first quarter is really change the mindset within the organization and how we view that new construction. We can control that. We can control what we do. And we have a strong competitive advantage against new construction and new operators. It might be nice shiny new buildings, but we've got 30 years of experience in this space. We know how to take care of seniors. We have a great reputation across our portfolio. We have talented employees. We have processes and scale and procedures that many of these new entrants into this space don't have, and we have the operating expertise that many of them also don't have. So while, I think, industry conditions will continue to be challenging, our focus is really on our own value proposition and how that is meaningful in our marketplace.

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Joanna Sylvia Gajuk, BofA Merrill Lynch, Research Division - VP [29]

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And I guess somewhat related to that. So 3 months ago on the Q4 call, you talked about the CapEx outlook for the year $25 million to $30 million. So is it still hold because, I guess, Q1 was only $3.5 million CapEx in Q1?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [30]

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Yes. We typically start a little bit slower in CapEx in any given year. But we -- I would say, Joanna, our plans are still to spend somewhere between $20 million and $30 million in total CapEx depending on the timing and the amount of cash we generate from our divestitures in 2019. So that would allow for $15 million to $20 million for necessary physical infrastructure CapEx needs for our communities, roofs, HVAC, elevators, those kinds of things. And then, $10 million to $15 million for room turns and upgrades as well as improvements at certain communities to sustain and improve their competitive position and experience of the residents. So that would be our goal and it's just really going to depend on the timing and the amount of cash generated from the divestitures.

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Joanna Sylvia Gajuk, BofA Merrill Lynch, Research Division - VP [31]

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If I might squeeze last one. So the cash was actually there negative in Q1. So how should we think about the progression through the year? Was there any timing issues or any unusual, I guess, cash outflow in Q1?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [32]

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No, you're right, Joanna. It was negative in the first quarter and with our occupancy where it is today and our revenue, that it will remain like that until we get that top line going better. And -- but we do believe we're in a strong cash position. The master credit facility we put in place at the end of 2018 really gave us some good cash position as we began the year and then we are looking to sell this limited number of communities just as part of the normal ongoing optimization portfolio, but it also does add cash to our cash position in 2019. So with that, we feel like we have the room that we need to really concentrate on improving our operations and our performance.

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Operator [33]

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We'll take our next question from Dana Hambly with Stephens.

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Dana Rolfson Hambly, Stephens Inc., Research Division - Research Analyst [34]

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Kim, you used the term commercial excellence, and I think there is a lack of commercial excellence when you joined CSU. I guess I'm just having a tough time conceptualizing what that actually means. I wonder if maybe you could break that down for me a little bit more.

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [35]

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Yes, Dana, happy to do that. When we think about commercial excellence, probably the easiest way to think about it is all things that touch the resident and their family. So that sort of an end-to-end process from the beginning point of our marketing activities in lead generation, all the way through our sales process to our tour process, to the residents moving in, their on-boarding process within the communities and then post move-in, the activities and engagement and the programming that we provide to them. So it's a very comprehensive way of looking at the full resident experience and making sure, that in every single one of those touch points, we are executing with -- to the best of our ability and in a way that creates significant value for that resident and their family.

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Dana Rolfson Hambly, Stephens Inc., Research Division - Research Analyst [36]

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Okay. That's helpful. And now as far as like capturing all the data and analytics, you feel like you have the systems in place where you're getting that very much real time, versus maybe where you were even in the fourth quarter?

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [37]

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Yes. With the conversion to the Yardi system and now having all of our communities on the Yardi system, which has a CRM element to it as well as several other elements, we do feel good about the capture of the data in the system and the analytics that we're able to evaluate based on that data and actually, the speed at which we're able to do it. We have really spent quite a lot of time here in the first quarter instituting a very robust process for that. And I feel very good about not only the timeliness of the information that we are able to get but also the accuracy of the information that we have.

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Dana Rolfson Hambly, Stephens Inc., Research Division - Research Analyst [38]

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Okay. That's helpful. Carey, on the lease accounting change, the $500,000 hit. Is that one time or is that going to carry through for the next few quarters?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [39]

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That will be the norm now, Dana, going forward. So it's just really a difference in how we're counting that lease, so it will be -- so in setting the new base, it will be that $500,000 each quarter in 2019 and then the comparison that we okayed 2020 going forward.

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Dana Rolfson Hambly, Stephens Inc., Research Division - Research Analyst [40]

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Next year. We'll lap that next year. Okay. And then on the -- as far as the balance sheet, are the bridge loans -- the $65 million, you said those are for next year. Is that the only real near-term priority for the balance sheet?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [41]

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Yes. So we have that $65 million bridge loan, and I think Kim noted in her comments that we're currently looking to extend that for 2 years. And then, besides that, we have an $11 million bridge loan that's also due later in 2020. And that is when that -- we will also either extend or put permanent financing on that community, but right now that community is -- would have essentially greater value than the bridge loan that's associated with it, and so we could certainly refinance that and with permanent debt at that time.

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Dana Rolfson Hambly, Stephens Inc., Research Division - Research Analyst [42]

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Okay. And then, Carey, on the divestitures, when do you think you'd be in a position to give some more detail on those for our modeling? And would they be like Kokomo where they're losing money, so even though it would take off revenue, it might be cash flow accretive?

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [43]

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Dana, there are -- it's a mix. So I think some of the ones that we are -- one of the -- some of the ones we're looking to sell do have a significant CFFO contribution. They're very good properties that have strong values and will result in meaningful net cash proceeds for us. And I'm just not comfortable yet -- quite yet talking about those numbers because we're still in the due diligence process of those, but I do hope that before we report next quarter, that we will even perhaps in the quarter provide an update on that and where that all is. But they are in the due diligence phase and getting close to those transactions going hard, if you will, with the cash that was put out there.

And then Dana, I will say otherwise, there are also some that are like Kokomo that do not have cash -- much cash contribution that we're looking to sell, but do have good value. And so it's a mix of both that we're looking at. Some of it just don't fit the portfolio and some that can generate some strong cash proceeds for us.

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Operator [44]

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(Operator Instructions) It appears there are no further questions at this time, I would like to turn the conference back to our speakers for any additional or closing remarks.

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Kimberly S. Lody, Capital Senior Living Corporation - CEO, President & Director [45]

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Okay. Great, Amy. In closing, I want to again reiterate our sense of urgency, diligence and precision in executing our strategy as stabilize, invest, nurture and grow, drive long-term shareholder value. While we're seeing many of our performance focused initiatives begin to take hold across the portfolio, it will take time for these activities to be fully anchored in the enterprise and produce the results we all desire. We appreciate your interest in Capital Senior Living, and we look forward to keeping you apprised of our developments. Thank you, everyone.

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Carey P. Hendrickson, Capital Senior Living Corporation - Executive VP & CFO [46]

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Thank you.

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Operator [47]

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This concludes today's conference. Thank you for your participation. You may now disconnect.